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Smallcells and Satellites: It’s a Match!

March 17, 2020 by Lluc Palerm | NSR

With recent declines in satellite capacity pricing,
Satellite Backhaul became a real alternative for MNO
rural deployments. However, CAPEX involved in the cell
tower, primarily designed for urban areas with a dense
distribution of subscribers, limited the market
opportunity to relatively large population
agglomerations. With the emergence of Smallcells, it is
now possible to close the business case even when there
is a small number of subscribers to be captured. This
means
the addressable market for satcom is expanding
significantly in covering small remote villages.

Smallcells are still a thin
contributor to the Satellite Backhaul market, attracting
very specific deployments in Asia. However, this will
rapidly change as a rich ecosystem is taking shape as
some regions (particularly Africa and Latin America)
have recently seen high levels of interest. As reflected
in NSR’s Wireless Backhaul via
Satellite, 14th
Edition report,
the installed base of
Smallcells will surpass 80,000 sites by 2029.

Unlocking New Markets with Smallcells

CAPEX for mainstream Macrocell Base stations was a major
barrier for connecting ultra-rural locations. The
initial investment involved in deploying those sites is
typically in the 100k-150k USD range (cell, tower,
energy, backhaul equipment, etc.). However, a new
generation of base stations, optimized for serving
smaller populations, has decreased the initial
investment to the 10k-30k USD range.

Assuming values for ARPU of 3 USD/sub/month, a satellite
capacity cost of 300 USD/Mbps/month and a bandwidth
allocation of 4 Kbps/sub (average values for a 3G
subscriber in an emerging market), one could infer the
minimum number of subscribers needed to close the
business case for a Macrocell vs Smallcell deployment.
Smallcells can generate positive returns attracting as
low as 300 subscribers, which make them an optimal
solution for ultra-rural deployments.

The emergence of Smallcells is rapidly expanding the
addressable market for Satellite Backhaul. Ultra-rural
locations are a natural fit for satellite deployments.
However, many of these remote villages are usually
small. In many cases, it is difficult for MNOs to close
the business case in villages under 10k inhabitants with
traditional Macrocells. Low ARPUs, small market
penetration (due to factors like affordability,
Smartphone availability or digital skills) and
competition make it difficult to amortize the initial
investment in a Macrocell.

This is rapidly changing with the adoption of
Smallcells. There are now many successful examples of
networks being deployed in ultra-rural villages of 1k-2k
inhabitants creating opportunities in areas previously
uneconomical for satellite and MNOs to address. With
this new market condition, NSR estimates the total
addressable market for Satellite Backhaul globally to be
587K sites.

A Flourishing Ecosystem

The core business from MNOs is obviously in urban areas
where operations are streamlined. However, MNOs also see
the value in extending coverage into ultra-rural
locations as competition and market saturation begin to
challenge ROI and other financial metrics in these
traditional battleground markets. To minimize risk, MNOs
are willing to outsource a big portion of their
operations in these non-traditional ultra-rural
locations. Consequently, new business models are
emerging, ranging from managed services, infrastructure
leases or even end-to-end offers with revenue sharing
schemes between the integrator and the MNO.

Given the large addressable market opportunity, what was
once a market driven by startup Smallcell vendors like
NuRAN, Parallel Wireless or IP.ACCESS and integrators
like AMN, is now rapidly attracting the interest of big
equipment providers like Huawei’s RuralStar, Ericsson’s
Psi or Nokia’s Kuha. Even Towercos that traditionally
focused in passive elements for urban areas are
beginning to understand the size of the opportunity and
are penetrating the market. With some large projects in
the pipeline like Telefonica’s Internet para Todos,
MTN’s push to cover ultra-rural sites or Orange’s
intention to improve coverage in Africa, NSR projects
exponential growth in the installed base of Smallcells.

Bottom Line

Technology and market dynamics are aligning to
accelerate growth in Satellite Backhaul. The recent
declines in satellite capacity pricing and performance
enhancements in the ground segment are matched with the
emergence of Smallcells that facilitate the deployment
of connectivity in rural areas. MNOs will leverage this
to capture new sources of revenues in what can be
considered non-traditional or non-battleground market…at
least for now.

With much lower CAPEX involved, Smallcells can close the
business case attracting as low as 300 subscribers
compared with 1,000+ for Macrocells, making this
relatively new offering an optimal solution for
ultra-rural deployments. The significant expansion of
the addressable market for Satellite Backhaul and MNOs
will inevitably lead to higher competition but also to a
significant narrowing of the digital gap that has
pervaded for decades between urban and rural dwellers.

While still in the early phases, the market for rural
Smallcells over satellite is growing rapidly, and NSR
expects continued double-digit growth over the next
decade.